Japanese Capital Redux

Back in 1986, then AT&T engineers Brian Hoffmann and Stephen Pollack came up with a new idea in manufacturing robotics: a highly flexible yet precise software-driven armless assembly system that could reduce the cost of automation up to 70%. When their employer wouldn't lend an ear -- or funding -- Hoffmann and Pollack privately raised $500,000 to produce their prototype, the Mega-1. Shortly thereafter they went through a successful initial public offering, raising $2.5 million for their Lawrenceville, N.J., start-up, Megamation. Today the $6-million company, which is just reaching profitability, sells its $150,000 product to a client list that reads like a Fortune 500 directory. Ironically, two major Japanese companies have stepped in to do what AT&T had declined to do: buy in. Brother Industries Ltd., the $1.8-billion Japanese global leader in industrial and office automation products, and Matsushita Electric Industrial Ltd., the $56-billion parent company of Panasonic, have both entered into licensing agreements with Megamation to fund further evolution of the Mega-1 system. Each paid Megamation an up-front fee of a couple hundred thousand dollars, and Megamation will receive a 3% to 7% royalty on every machine the Japanese giants sell, depending on the volume. In return, Megamation will share all the information necessary for its licensees to build their own application-specific prototypes. And Brother will have exclusivity in marketing Mega-1 throughout Asia.